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China technology

ZTE wins one but loses one too – Italy contract bid falls through even as US restrictions start to ease

Losing the Italian bid is just the latest chapter in the ZTE saga, which is at the epicentre of a wider trade dispute between US and China

PUBLISHED : Wednesday, 04 July, 2018, 10:11am
UPDATED : Tuesday, 17 July, 2018, 2:27pm

The Trump administration is letting ZTE Corp resume some business activities while the US weighs an end to a seven-year ban on the Chinese telecommunications equipment manufacturer.

The easing of restrictions didn’t come soon enough for ZTE’s bid to win a contract in Italy to supply wireless equipment to Wind Tre. ZTE lost the deal because it is barred from buying US technology, and Ericsson won the 600 million-euro (US$700 million) contract instead, people with knowledge of the matter said, asking not to be identified because it hasn’t been announced. ZTE’s shares in Hong Kong rose about 2 per cent on Tuesday.

The mixture of good and bad news is just the latest chapter in the saga of ZTE, which has seen its prospects and stock price rise and fall in the past few months over access to technology it needs to sell telecoms gear across the globe. The US imposed the ban against the Chinese company earlier this year, saying that it failed to comply with punitive measures imposed after allegations of lying about equipment sold to Iran and North Korea.

Still, the administration of US President Donald Trump has sought to ease restrictions on ZTE, which has become a bargaining chip amid rising trade tensions with China. Last week, the Shenzhen-based company appointed a new chairman as part of its agreement to clean house and pay a record US$1.4 billion fine to get back into business. The latest ZTE authorisation by the Commerce Department’s Bureau of Industry and Security is valid from July 2 until August 1.

ZTE is expected to be in compliance with US demands by August 1, a person familiar with the matter said.

US temporarily lifts ban on ZTE while lawmakers debate its punishment

Representatives for Ericsson and Wind Tre declined to comment on the Italy deal, which ZTE had originally won two years ago. Now, the Swedish telecommunications equipment maker has the multi-year accord to supply base stations for about 60 per cent of Wind Tre’s Italian mobile networks.

The latest US authorisation permits China’s No. 2 maker of telecoms gear to support existing networks or equipment under contracts signed on or before April 15, when the US blocked companies from selling components to ZTE on the sanctions violations. The ban had forced ZTE to announce it was halting major operations.

Trump reversed course in May, saying he was reconsidering penalties on ZTE as a personal favour to Chinese President Xi Jinping. Later that month, the Trump administration announced it would allow the company to stay in business after paying the fine, changing its management and providing “high-level security guarantees.”

The about-face sparked concerns of ZTE being used as a bargaining chip in US-China trade negotiations to avert a tariffs dispute. Those talks have stalled and the US is set to impose tariffs on US$34 billion of Chinese goods Friday, and another US$16 billion may follow. China has said it will retaliate dollar-for-dollar on US imports.

ZTE’s new management now faces the challenge of rebuilding trust with phone carriers and corporate customers. The company is said to be facing at least US$3 billion in total losses from the months-long moratorium, which cut off the flow of chips and other components it needed to make its networking gear and smartphones.

Why the US government sees China Mobile as a national security threat

In Washington, a bipartisan group of lawmakers remains concerned about ZTE’s threat to US national security and is pushing for legislation aimed at restoring harsher penalties. Lawmakers are set to resume negotiations on legislation that will try to balance concerns that ZTE presents a security risk with efforts to get the company back into business.

This week’s authorisation lets ZTE give support, including software updates, for ZTE phone models that were available to the public on or before April 15, and it allows parties to make and receive payments for permissible ZTE transactions. The order also authorises “the disclosure to ZTE of information regarding security vulnerabilities in items owned, possessed or controlled by ZTE” to protect communication networks and equipment, it said.